Court directs Airport Authority of India to halt coercive actions against NKG Infrastructure Ltd. pending final adjudication by Dispute Resolution Committee.
In a significant ruling, the Delhi High Court has directed the Airport Authority of India (AAI) to refrain from taking coercive actions against M/S NKG Infrastructure Ltd. concerning the invocation of bank guarantees, pending the completion of dispute resolution proceedings. The judgment, delivered by Justice Mini Pushkarna, underscores the necessity for adherence to contractual mechanisms before enforcing bank guarantees, particularly in cases where disputes are actively being adjudicated.
The dispute arose from letters issued by AAI on April 24, 2026, to various banks, seeking the encashment of bank guarantees totaling Rs. 3.17 crore. The petitioner, NKG Infrastructure Ltd., contended that this invocation was arbitrary and illegal, given the ongoing adjudication of disputes by the Dispute Resolution Committee (DRC) as per Clause 25 of their contract agreement dated June 4, 2019. The agreement pertains to the upgradation works at Jabalpur Airport.
Counsel for NKG Infrastructure argued that despite invoking Clause 25 for dispute resolution in January 2026, AAI had been slow in constituting a functional DRC, thereby delaying the adjudication process. They further highlighted a precedent where similar relief had been granted in a separate but related matter, indicating a consistent judicial approach to such disputes.
Conversely, AAI's counsel maintained that the authority was entitled to encash the bank guarantees, citing the unconditional nature of such guarantees as per their terms. They argued that unless fraud, irreparable harm, or a violation of the guarantee's terms were evident, the court should not impede the invocation process.
The court acknowledged that the DRC had indeed been constituted and was actively hearing the matter, with the last session held on April 23, 2026. Justice Pushkarna emphasized the importance of allowing the dispute resolution process to conclude before any further enforcement actions by AAI. Consequently, AAI was instructed not to take any precipitative actions against NKG Infrastructure Ltd. until the DRC proceedings reached a conclusion.
Furthermore, the court extended protection to the petitioner for an additional 10 days post the DRC's decision, ensuring no coercive actions during this period. However, the court clarified that this protective order would not extend to two bank guarantees already processed for encashment, reflecting a balanced approach to the issue at hand.
This judgment reinforces the judicial emphasis on respecting dispute resolution mechanisms embedded within contracts, ensuring parties adhere to agreed procedures before resorting to enforcement actions. The decision is likely to have implications for similar contractual disputes, promoting a more structured approach to arbitration and conciliation.
Bottom line:-
Arbitration - Bank guarantees - Invocation of bank guarantees during pendency of dispute resolution proceedings - Court directed that no further coercive action shall be taken by the respondent till final adjudication by the Dispute Resolution Committee (DRC), except for two bank guarantees already processed for encashment.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 9
